Discussion board postings.

1. Our readings mention “Financial management involves planning, forecasting, analysis and evaluation, as well as understanding legal and regulatory issues” (Byrd et al, 2013).  The two main aspects are:  Tangible and intangible.  The tangible are linked with the relationship between the respective company and assists with identifying investment prospects.  Whereas, the intangible deals with relationship between a company and capital markets; it knows the sources of finance regarding debt and equity.

Not only do financial managers must understand these aspects but also know the financial market in respect to effectiveness, productivity, and liquidity.  This is because if the market is liquid, they can simply float the company’s share which can produce more money for more investments.  At the same time, knowing would help a company in getting the rival company’s strategies and would find explanations for an increase demand of the rival’s shares.  Additionally, the vital characteristics of the financial market is the impression of the total information.  If it actually is, it is an efficient market.  But if not, obviously it financial market would not be efficient. 

A financial balance sheet shows the where the company is at during a certain period and provides details how the company finances their assets.  If the finance manager does not do their job (i.e. not accurately doing finance statements), it would drastically affect the company’s performance; these statements would not be an accurate account of the company.  For example, in 2001, Enron Company failed to pay out due to fraud in their accounting.  Enron’s finance managers did not satisfy their financial responsibility; thus made false statements on Enron’s statements (Olazabel, 2011).

Angie

 

References

Byrd, J., Hickman, K., & McPherson, M. (2013).  Managerial Finance . San Diego, CA: Bridgepoint Olazabal, A. (2011). False Forward-Looking Statements and the PSLRA’s Safe Harbor [article]. Indiana law journal, (2), 595.

2. It is important for managers to understand finance because that is what runs a business.  If a manager is only worried about production, and does not think about the market and the way the company’s finances are run, then they can run into a lot of trouble. For example, I work for an ethanol plant that also makes co-products.  If the plant manager says to make as much wet feed as we can since it is less labor intensive to do so, then he should surely know where the market sits with wet feed.  If wet feed is being sold for half of what dry feed is, then it may not make sense financially to put all of our eggs into the wet feed basket.  Managers should probably also know about how their competitors are doing financially also.  This is how they can stay up on pricing, inventory amounts, and demand. 

A manager should know about their liquidity because determines the degree in which an item can be bought or sold in the current market without affecting its price.  They need to know this in order to know how much of an item to makes, and at what price they are able to sell it at.  Competitiveness is something they should know about because they need to know where they stand in the market.  They need to know how much their competitors are selling their products for, how many products they are selling, and where they are selling these products.  Efficiency is something that is basic, yet very complicated.  Managers need to know if the amount of money they are spending to make a product is being made back in the end. 

The financial balance sheet allows a manager to see not only what a company actually owns, but also what it owes.  The manager needs to know where the company stands at all times, so the financial balance sheet will give them that information for slotted amounts of time.  This will affect the manager’s decision making process because they may decide to make staff cut-backs or amp up the production of certain products.

If managers did not fulfill the responsibly related to finance, then the whole company could go under.  They need to watch the numbers and know where the company is in order to make informed and proper decisions.  I know someone who used to own a restaurant/bar.  They would allow their friends to come and make whatever food they wanted and drink all night for free.  What a nice friend right?  Well, their business ended up going under, obviously, because they were not paying attention to financial balance sheets and what-not.  It is great to be a good friend, but business is business.

3. Managers should favor a company’s long-term profits; although managers continue to put great emphasis on stock prices due to the fact that results are better now but not in the future.  This can be examined more if a bigger investment is certain for a company for enhancing a process for its manufacturing.  All together companies are obliged to take a loss on a short-term profit but due to this obligation, the hefty investment could make that business more of a competition and more of a profit in the long run (Byrd et al, 2013).   How the partiality concerning short-term profits can be damaging to long-term profits can be shown in this example:  The popular image company Kodak only had its site on their short-term profits instead of their long-term profits thus leading to prepare for filing bankruptcy.  “Kodak also failed to read emerging markets correctly…Two announcements on January 10th—that it is restructuring into two business units…but the restructuring could be in preparation for Chapter 11 bankruptcy.” (Economist.com, 2012).  Managers typically don’t put emphasis on today’s stock value.  The idea of an average company is labeled when a business does well at that time the price of stock would automatically show a resilient implementation of an effective business plan, which is from a basis of a firm business plan.  Nonetheless, the company’s profit is not tied to its value in stocks.  In my opinion, managers need to focus more on the company’s long-term planning as opposed to putting a lot of emphasis on its short-term profits and today’s stock prices that fluctuate constantly thus being a distraction from an effective business plan. Angie References

Byrd, J., Hickman, K., & McPherson, M. (2013).  Managerial Finance . San Diego, CA: Bridgepoint 

Economist.com. (2012). Technological change. The last Kodak moment? Retrieved on March 18, 2015 from http://www.economist.com/node/21542796

 4. Managers should not focus on the current stock value because doing so will lead to overemphasis on short-term profits at the expense of long-term profits.

I think that this sentence is correct.  I think that if you are looking at the overall sales or profits of something, you want to see how it does down the road.  Many items when they first start out sell very well, but then after a while the sales drop off dramatically.  I use the example of a movie being released.  The lifespan of a movie is about three or four weeks in the theaters, until the next big movie comes out.  If it is a success, you will reap huge benefits, however if it comes out to poor reviews, you will be lucky to make a profit on the film.  You would have to hope for good Video on Demand Sales, plus Blu ray and DVD sales.  If it did not do so well in the box office, it will translate o not so good sales in the secondary market.  Movies like Titanic, The Dark Knight, Avatar, and The Avengers in recent years were huge blockbusters, so the shelf life for those movies are greater.  They will last longer down the road and rewatching these movies will be more likely. 

A short term gain can be seen on the financial balance sheet can been seen as a stopgap approach.  You will get your money back from tangible and intangible items on the LHS, but the RHS can be affected with stock prices decreasing every day.  This can make the company's financial future become more and more in doubt.  Stocks are the lifeblood of a company.  If stock is worthless, then so is your company. 

References:

Films that forced film studios into bankruptcy.  Retrieved from Listal.com on March 18, 2015  http://www.listal.com/list/films-pushed-studios-into-financial